Cryptospace Spotlight 2022 #25 (19 Jun 2022)
Celsius and 3AC further cryptospace shaky outlook, Inverse Finance got exploited for $1.2M, and browser-based wallets could expose seed phrases under certain conditions!
Technology and Industry
Celsius Network, an interest-earning yield platform, has frozen withdrawals as the network faced a liquidity crisis. Customers now fear they will never be able to access funds that are locked on Celsius. [more][more-2]
Report noted that it suffered a series of severe DeFi losses including over 38,000 ETH in a blunder related to Stakehound, followed by a $22 million loss in connection with the Badger DAO hack.
It might be affected in recent Terra event as it made substantial deposits to Terra’s Anchor Protocol starting in December. [more]
On June 10, a twitter handler “Crypto_Joe10” noted that Celsius has meaningful exposure to Staked ether (stETH), which has depegged from ether at a ratio of 0.93:1.
Crypto lending platform Celsius announced on Sunday, Jun. 12 at 10:10 pm ET, that it would be pausing withdrawals, swaps and transfers between accounts on its platform due to “extreme market conditions.” [more]
Crypto research firm Kaiko said Celsius suffered from a combination of poor risk management, bearish market conditions, and overexposure to stETH (staked ether, a derivative of ether locked in the Ethereum Beacon Chain), which drove the firm into a “Lehman-esque” position. [more]
Celsius calls on Citigroup for options after liquidity squeeze
Binance resumed after halted Bitcoin withdrawals for 3 hours due to ‘stuck on-chain transaction’ [more][more-2][more-Binancetweet]
Three Arrows Capital (3AC) confirms heavy losses from LUNA's collapse and and said it had hired legal and financial advisors to figure a way out. [more] more-2]
3AC said on Wednesday it was committed to working things out, seemingly addressing social media chatter that it is facing liquidation issues. [more]
3AC, which made a strategic investment in BlockFi in 2020, had borrowed bitcoin from the company but was unable to meet a margin call on that loan. [more]
3AC has been offering treasury management as a service to its own investments. If the VC becomes insolvent, startups may find their capital reserves are gone. [more]
A DeFi protocol backed by 3AC has a significant portion of its treasury unaccounted for. It has not heard from the 3AC team this week, according to the protocol’s founder, who agreed to speak on the condition of anonymity. [more]
Meanwhile, Nichol Yeo, a partner of law firm Solitaire LLP, which is advising 3AC, told the WSJ that it was keeping Singapore’s financial regulator, the Monetary Authority of Singapore, apprised of 3AC's recent developments.
Ethereum co-founder Vitalik Buterin’s Soulbound Token proposal for a robust identity and reputation system has stirred up the crypto community. [more]
Soulbound Tokens or SBTs are non-transferable, non-financialized tokens tied to a unique profile proving verifiable achievements and commitments. Still at the concept stage, it’s suggested SBTs will be capable of tracking memberships, credentials and affiliations with educational establishments, decentralized lenders and other entities.
Banking uses 56 times more energy than Bitcoin. [more]
Metaverse could be worth $5 trillion by 2030: McKinsey report. [more]
Regulatory
European Union - EU policymakers held another meeting yesterday in an attempt to reach an agreement on the Markets in Crypto-Assets (MiCA) bill that will shape crypto development in the European common market. [more]
France, which currently holds the EU presidency, aims to close a deal by the end of this month
Thailand - Huobi crypto exchange shuts operations in Thailand after license got revoked. [more]
United States - Five state regulators - Alabama, Kentucky, New Jersey, Washington and Texas - have opened investigations into the dealings of Celsius. [more]
Celsius froze withdrawals of user assets earlier this week, citing market conditions.
Regulators want to ensure incidents like this do not occur again.
Hong Kong - Hong Kong and Israel partner for CBDC cybersecurity research [more]
South Korea - South Korean may consider a self-regulatory body that would oversee market conditions and monitor compliance for “blockchain-based platforms”. [more]
Bank of International Settlements - BIS’ economists said current DeFi loans don’t finance real economy activities. [more]
Security and Risk
16 Jun - DeFi platform Inverse Finance exploited for $1.2M through flash loan attack. [more][more-InverseFinance][more-analysis][more-analysis2]
Attackers seemed to use a flash loan attack to trick the protocol and steal more than 53 bitcoin, worth $1.1 million, and 10,000 tether (USDT), a stablecoin backed on a 1-1 basis with U.S. dollars. The exploit comes just over two months after attackers stole $15 million worth of cryptocurrencies from Inverse Finance in a similar attack, as previously reported.
Security analysis noted that the hack is made possible due to the price oracle manipulation, which misuses the balances of assets in the pool to directly calculate the LP token price. It is greatly facilitated by the flashloan to skew the reserves in the pool.
Blockchain security firm found several instances where browser based wallets including Brave, MetaMask and Phantom can expose a crypto wallet user’s secret recovery phrase. [more]
Users who meet the following conditions may be at risk:
Users who have unencrypted hard drives
Users who have previously imported their secret recovery phrase into a web extension on a device that is in the possession of someone else or have had their computer compromised
Users who have used the “show secret recovery phrase” checkbox to view their secret recovery phrase on-screen during the import process
FBI warns of cryptocurrency Scammers on LinkedIn. Special agent said “fraudulent activity is significant” on the business-focused social network. [more]